The U.S. Department of Justice (DoJ) has revised its proposed antitrust settlement with Microsoft, and a judge started hearings to determine whether the settlement is in the public interest. Meanwhile, the states that did not sign the settlement continued to press for harsher restrictions and deposed several top Microsoft executives.

Minor Changes to Settlement

The revised settlement, released Feb. 27, is not substantially different from the settlement signed in Nov. 2001. (For details about that settlement, see "Effects of the Antitrust Settlement" on page 13 of the Jan. 2002 Update.) Most of the revisions are minor changes to definitions that were criticized as being too loose. The only significant change was the removal of a passage in the settlement that could have required third parties (OEMs, ISVs, and others) whose software ships with Windows to cross-license their intellectual property to Microsoft if Microsoft needed this license to comply. Some parties, such as Sony, worried that this provision could have been used inappropriately.

On Mar. 6, Judge Colleen Kollar-Kotelly began hearing testimony from Microsoft, the DoJ, and the company's allies and enemies to help her determine whether the settlement is in the public's best interest (as is required under the 1974 Tunney Act). In the hearings, Kollar-Kotelly warned that she had "a lot of work" ahead before she could make a decision, suggesting that she will not give rubber-stamp approval to the settlement, but will instead consider it in conjunction with the hearings on the dissenting states' proposed remedies.

A memorandum describing the modifications to the proposed settlement is at www.usdoj.gov/atr/cases/f10100/10144.htm.

Embedded Windows Gains Importance

Meanwhile, the dissenting states and Microsoft released videotaped depositions from Microsoft CEO Steve Ballmer and Platforms Group Vice President Jim Allchin. These depositions suggest that the states will make a new argument: Microsoft already sells a componentized version of Windows, Windows XP Embedded (XPe), and could easily provide this version to OEMs to make it easier for them to remove Microsoft middleware from the PCs they manufacture.

In his deposition, Ballmer claimed that there would be no demand from OEMs for a stripped-down version of Windows, and said this proposed remedy would require Microsoft to sell such an impossibly large number of versions of Windows that Microsoft could be forced to withdraw it from the market.

The states' lawyer then pointed out that Windows XPe is already available and contains the exact same code as XP, but allows developers to remove certain features—including middleware such as the Windows Media Player—they don’t want to include in an embedded device.

Allchin also admitted that the company is continuing to map the dependencies among Windows software components so that developers can "remove pieces of functionality and/or tailor the system in a very comprehensive way."

The states' case is probably at least a year away from resolution, and Microsoft will appeal any unfavorable decision. Nonetheless, if the states' line of argument succeeds, OEMs might someday be able to buy a componentized version of Windows, remove Microsoft middleware from it, and then charge ISVs for putting their middleware in its place.

On Mar. 18, Kollar-Kotelly will begin hearings to consider the dissenting states' proposed remedies. (For details of what the states want, see "States Press On; Neukom to Retire" on page 16 of the Jan. 2002 Update.)

Transcripts of Ballmer's and Allchin's depositions are available at www.microsoft.com/presspass/legalnews.asp.